Starting a business will cost much in terms of investment and expenses. It may take a year to two years to become profitable and then once you are profitable you still face lots of risk. It is natural for a business to fail but the risks can be limited with appropriate planning.
Many small businesses owners are not family with how business actually works and the actual risks entrepreneurs must face. Failure to plan can cause all types of problems that begin to be manifested within the first few months of operation. Knowing what “pot holes” you might step into will help you better prepare for avoiding them before you begin.
Reasons Why Businesses Fail:
Not Enough Money: Sometimes business owners are not aware of exactly how much their business is going to cost them in the first couple of years. Let us imagine that you start a small grocery story. You would need to cover remodeling ($20,000), inventory ($50,000), rent ($2,000 per month), utilities ($500 per month), insurance ($ 200 month) and wages ($????).
All of these expenses have to be covered for a time period ranging from 6 months to a year and a half. It may take this long for your business to make a profit. If you don’t have the money in the bank you will either have to borrow or close your doors when unintended expenses happen.
No Skill or Experience: Many business owners don’t have the skill or experience to start a business in their desired fields. For example, if you want to open a carpentry shop but think you can hire the people to do the job it is unlikely that you will be successful. If you can’t monitor the work well (i.e. because you don’t know what your doing) and can’t step in to do the work when needed (because you have no idea what your doing) you will likely not be able to compete against people who know what they are doing. Learning an industry takes years.
No Knowledge of Business: An owner might be great at his/her field but knows little about business. They cannot do the basic accounting, can’t budget, and can’t keep track of bills or all the other stuff that is required to make a business efficient.
Wrong Location: Because a business might just be starting it doesn’t have all the money it desires to really be successful. Thus they take a cheaper location in lieu of a better one. What they find once they open that there simply isn’t enough foot traffic to make the business sustainable. If they would have leased a better location they would have made more money.